FTSE year-end struggles and DAX's record highs: focus on UK inflation report

There is no way to sugarcoat this – so let’s say it straight. The year 2023 has been entirely a forgettable one for the FTSE.

With just under two weeks before year-end, the FTSE is up a mere 2.18% CYTD. Its German counterpart, the DAX, has added 19.59%, while the French index, the CAC, is up 16.92%. Even the Australian stock index, the ASX 200, is up 5% CYTD, rubbing salt into the wound after Australia’s cricket team retained the prized ashes.

Last week, the FTSE’s attempt to break higher, following the dovish Fed meeting failed, as the BoE pushed back against expectations of rate cuts, warning that it still had “some way to go” in its fight against inflation. This puts the spotlight firmly on the UK’s latest inflation report, which is due on Wednesday at 6.00 pm AEDT.

What is expected from the UK’s November inflation report?

Last month, headline inflation in the UK fell to 4.6% YoY in October from 6.7% in September. It marked the lowest rate of headline inflation in the UK since October 2021, largely due to falls in energy and food prices.

The market is looking for the headline rate to moderate to 4.3% YoY. Core inflation is expected to ease to 5.6% YoY from 5.7% in October – still way too high to contemplate BoE rate cuts.

UK inflation rate chart

FTSE technical analysis

Last week's failed attempt to break higher saw the FTSE return to the safety of the 200-day moving average at 7563. Providing it continues to hold above the 200-day moving average (closing basis), the platform remains in place for a second attempt to break resistance at 7725/46 before a push towards the April 7936 high.

Aware that should the FTSE lose the support of the 200-day moving average and then horizontal support at 7500, a retest of range lows 7300/7200 is possible.

FTSE daily chart

DAX technical analysis

Like its US counterpart, the Dow Jones, the DAX recently traded to a new all-time high.

As viewed via the RSI indicator, the DAX is at extreme overbought levels, and while we remain bullish into year-end, we would not contemplate opening fresh longs at these levels. Instead, we would prefer to wait for a corrective pullback and signs of basing to look to open longs.

DAX daily chart

• _{Source TradingvVew. The figures stated are as of 19 December 2023. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}